Item 8.01.Other
Events.
Project Update
– Groton
Sub Base – The Groton Project
As previously disclosed in its Quarterly Report on Form 10-Q for
the fiscal quarter ended July 31, 2022, during the restarted
commissioning process of the 7.4 MW platform at the U.S. Navy
Submarine Base in Groton, Connecticut (the “Groton Project”),
FuelCell Energy, Inc. (the “Company”) encountered performance
anomalies primarily in the mixer eductor oxidizer (“MEO”), which is
a sophisticated piece of equipment specific to the Groton Project
designed to optimize fuel and air flows within the platform.
The Company further disclosed that it was in discussions with
the Connecticut Municipal Electric Energy Cooperative (“CMEEC”) and
the U.S. Navy about operating the project at a reduced output of
3.0 MW per platform (a total system output of 6.0 MW) at the start
of commercial operations in order to optimize performance of each
of the two MEO units while implementing upgrades to each of the two
MEO units. The upgrades are expected to bring the system to
its maximum output in approximately one year.
On September 29, 2022, the U.S. Navy granted an extension of the
deadline by which commercial operations are to be achieved at the
Groton Project from September 30, 2022 to November 30, 2022.
The Groton Project has achieved operations at approximately
6.0 MW and has passed a U.S. Navy-required seven-day performance
test and is therefore operating at the level at which the Company
has proposed commencing commercial operations. Nevertheless,
the Company requires the approval of both CMEEC and the U.S. Navy
in order to commence commercial operations at the reduced output.
Although discussions are progressing, no assurance can be
given that CMEEC and the U.S. Navy will provide such final approval
to commence commercial operations at 6.0 MW.
In addition, as previously disclosed, in August 2021, the Company
closed on a tax equity financing transaction with East West
Bancorp, Inc. (“East West Bank”) for the Groton Project. East West
Bank’s tax equity commitment totals $15 million. In connection with
the initial closing, the Company drew down $3.0 million. Under the
original terms of the Company’s agreement with East West Bank, the
Company would have been eligible to draw the remaining amount of
the commitment, approximately $12 million, once the Groton Project
achieves commercial operation. In addition, under the original
terms of the Company’s agreement with East West Bank, the Groton
Project had a required commercial operation deadline of October 18,
2021. East West Bank granted several extensions of the commercial
operation deadline, which collectively extended the deadline to May
15, 2022, in exchange for fees of $0.4 million in the aggregate.
Because commercial operations were delayed beyond May 15, 2022,
East West Bank had a conditional withdrawal right to request the
return of their investment at an amount equal to 101% of the amount
of the investment.
On July 7, 2022, the Company and East West Bank amended their tax
equity financing agreement. Under the terms of this amended
agreement, the commercial operations deadline was extended to
September 30, 2022. In addition, the terms of East West Bank’s
remaining investment commitment of $12.0 million were modified such
that East West Bank will contribute $4.0 million on each of the
first, second and third anniversaries of the Groton Project
achieving commercial operations, rather than contributing the full
$12.0 million when the Groton Project achieves commercial
operations. Such contributions are subject to certain customer
conditions precedent, including a third-party certification by an
independent engineer that the plant is operating in conformance
with the power purchase agreement. In conjunction with this
amendment, the Company agreed to aggregate fees of $0.5 million
(which are inclusive of the fees from the previous extensions
described above), which shall be payable by the Company upon
commencement of commercial operations of the plant.
The Company continues to provide periodic updates to East West Bank
regarding its discussions with CMEEC and the U.S Navy regarding the
commencement of commercial operations at the Groton Project at
approximately 6.0 MW and has briefed East West Bank on the receipt
from the U.S. Navy of an extension of the commercial operations
deadline through November 30, 2022.
On October 4, 2022, the Company and East West Bank further amended
their tax equity financing agreement to extend the deadline by
which commercial operations are to be achieved at the Groton
Project from September 30, 2022, to November 30, 2022. Should the
project not achieve commercial operations by November 30, 2022,
East West Bank will then have a conditional withdrawal right to
request the return of their investment at an amount equal to 101%
of the amount of the investment. In addition, modifications
to the Groton Project documents between CMEEC and the Company as a
result of an agreement to commence operations at less than 7.4 MW
may require the approval of East West Bank as part of East West
Bank’s rights under the agreement between East West Bank and the
Company. If such approval is necessary, the Company cannot
provide assurance that East West Bank will provide its
approval.